Money, Bonds, and the Liquidity Trap

This paper examines a search model of money and public bonds in which coordination frictions lead to multiple, Pareto ranked equilibria. Whether money and bonds are substitutes or complements, is not a primitive of the economy, but an equilibrium outcome. There exists an equilibrium resembling a liq...

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Veröffentlicht in:	Journal of money, credit and banking credit and banking, 2020-10, Vol.52 (7), p.1853-1867
Hauptverfasser:	ARAUJO, LUIS, FERRARIS, LEO
Format:	Artikel
Sprache:	eng
Schlagworte:	Affluence Alliances Coordination Equilibrium Interest rates Liquidity liquidity trap Monetary policy Money Pareto optimum public bonds
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creator	ARAUJO, LUIS FERRARIS, LEO
description	This paper examines a search model of money and public bonds in which coordination frictions lead to multiple, Pareto ranked equilibria. Whether money and bonds are substitutes or complements, is not a primitive of the economy, but an equilibrium outcome. There exists an equilibrium resembling a liquidity trap, in which money and bonds are perfect substitutes, interest rates are zero, and monetary policy is ineffective; and a superior equilibrium in which money and bonds are complements, interest rates are positive and monetary policy has a liquidity effect. On this view, the liquidity trap is a belief‐driven phenomenon.
doi_str_mv	10.1111/jmcb.12697
format	Article
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subjects	Affluence Alliances Coordination Equilibrium Interest rates Liquidity liquidity trap Monetary policy Money Pareto optimum public bonds
title	Money, Bonds, and the Liquidity Trap
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